Abstract
Noting that risk neutral distributions are estimated by minimizing the squared deviations between market and model option prices we consider using option payoff moments in estimating distributional parameters from a sample of observations. It is observed, in particular when compared to maximum likelihood estimation, that digital option payoff moments yield the lowest chisquare statistics for a test of uniformity for data transformed to the unit interval by the estimated distribution function.
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Madan, D.B. Estimating Parametric Models of Probability Distributions. Methodol Comput Appl Probab 17, 823–831 (2015). https://doi.org/10.1007/s11009-014-9409-4
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DOI: https://doi.org/10.1007/s11009-014-9409-4